Professor Matthew McCaffrey on the Austrian Definition of Capital and its Application for the Health of Your Business
Key Takeaways and Actionable Insights
An understanding of the Austrian definition of capital is tremendously useful to all business owners and managers.
What is capital? Austrian economics has a precise and distinctive definition — unlike business schools and most business publications, books, and columnists. Among those entities, the term capital tends to be used very imprecisely. You might see sentences like, “Entrepreneurs must ensure they have sufficient capital to get their new product to market”, or “to get to break-even”. Such usages imply that capital is a cash reserve to be “burned off” in the process of launching and scaling a business.
Recently, it has become fashionable to coin terms such as human capital, or brand capital, or relationship capital, or even spiritual capital or street capital. All of these terms are sloppy definitions of capital from an Austrian point of view.
And it’s important to note that capital is not the same as capital goods, which are “produced means of production”. Capital is not a means of production, it is a consequence of production.
What, then, is the precise Austrian definition of capital?
On the E4E podcast #87, Professor Matthew McCaffrey gives us this definition:
Capital is the monetary value of a business’s claims to income. This includes all of its marketable assets
Article from Mises Wire